Bombay High Court
Oil And Natural Gas Commission vs Punjsons Pvt. Ltd. on 8 September, 1998
Equivalent citations: 1999(1)BOMCR228, (1999)1BOMLR84, 1999(2)MHLJ692
Author: F.I. Rebello
Bench: F.I. Rebello
ORDER F.I. Rebello, J.
1. The petitioner by an agreement dated 15th June, 1984 entered into a contract with the respondent for coating, wrapping and weight coating etc. of line pipes for South Bassein Hazira Gas Lines Project. The respondents were one of the tenderers for the original bid. The petitioner however in terms of bids received Awarded the contract to Mazgaon Docks Limited. Subsequently the petitioner Awarded a part of that contract to the respondent. There are some disputes as to the terms and conditions more specifically the Telex dated December 1st, 1983 in view of Clause 10 of the Agreement and hence I am not considering the said document though it is referred to in the contract and in the Award. The relevant aspects, to the extent they are necessary will be dealt with while dealing with challenges to the Award. Suffice it to say that the contract was signed pursuant to which the respondents carried out the works. The contract contained a Clause, namely Clause 28.1 for arbitration in case of disputes. The respondents invoked the said Clause. Reference to arbitration was made in terms of the Clause. The Arbitrators published their Award on 22nd April, 1995. Some of the claims of the respondent were either accepted in full, or partly accepted or rejected. The counter claim filed by the petitioner was rejected.
By the present petition the petitioner has prayed that the Award dated 22nd April, 1995 be set aside.
2. At the hearing of the petition, on behalf of the petitioner, the challenge principally is to the Award of three claims as Awarded by Arbitrators, namely (1) Claim for Wharfage; (2) Claim for hooking charges and (3) Idle charges.
The challenges to the claims are formulated as under :-
(a) Awarding of Wharfage charges,- it is contended discloses error of law apparent on the face of the record or a conscious disregard of the law amounting to legal misconduct on the part of the Arbitrator. It is the contention of the petitioner that the claim was covered by Clause 15.1 and not Clause 20.1 as held by the Arbitrators. Thus Awarding wharfage on the basis that it is a tax or duty under Clause 20.1, is proceeding on a wrong proposition of law and is not a mere question of construction of the Clauses.
(b) Awarding of Hooking charges,- it is contended was outside the terms of the contract. The schedule to the contract clearly provided under (5) for handling of coated pipes, which reads as under :-
"Transportation of coated pipes upto birth/Jetty/anchorage point including handling/stacking of coated pipes in Yard in compliance with relevant specifications and contract clauses."
It is therefore contended that it was the duty of the respondent amongst others to handle and stack the coated pipes. The price quoted was for all their services. In these circumstances in Awarding the claim the Arbitrators have travelled beyond the terms of the contract and hence the Award to that extent is without jurisdiction.
(c) In Awarding claim for idle charges, it is again contended is without jurisdiction as it was not provided for in the contract and consequently the Award to that extent is also without jurisdiction.
Reliance has been placed on several authorities for the three contentions which I will refer, to the extent that they are necessary.
3. On behalf of the respondent, various contentions have been raised which can be summed up as under :-
(i) The Award is final and binding on the parties on all questions of fact and law and the Court should as far as possible give effect to the Award. Interference by the Court is circumscribed. The Court does not sit in appeal over the Award. If the contract is open to two equally conceivable or possible interpretation the Court will not interfere nor will the Court examine the reasonableness of the reasons given by the Arbitrators, neither will the Court look into or appraise the evidence. The Court can set aside an Award on ground of error apparent on the face of the Award. Error in a proposition of law must appear on the face of the Award and forming the basis of the Award. Mere error of law in arriving at a conclusion is not an error amenable to correction by Court. Similarly, Court will not interfere with the Award where no proposition of law is stated in the Award but a legal deduction of law.
(ii) It is not a misconduct on the part of the Arbitrators to come to an erroneous decision, whether the error is one of fact or law and whether or not the findings of fact are supported by evidence. Particulars of misconduct must be raised in the petition and objections must be within the prescribed period of limitation. No new objections beyond the prescribe period of limitation can be raised to the Award.
(iii) In a case of challenge to jurisdiction of Arbitrators, the Court has to examine whether it is an error within jurisdiction or an error in excess of or beyond jurisdiction. Only in the latter event will the Court interfere with the Award.
A large number of Judgements were cited at the Bar in support of the various propositions. The said judgments will be referred to the extent they are necessary and relevant for the purpose of deciding the issue arising herein.
4. The first question therefore which has to be decided is whether the Award of the Arbitrators to the extent that they have Awarded wharfage charges can be sustained. In so Awarding the Arbitrators have proceeded on the footing that wharfage is a tax. Reliance in arriving at that conclusion was placed on opinions of Under Secretary, Ministry of Transport and Shipping and the Ministry of Law, to hold the payment of wharfage is a statutory duty and as such the Petitioner were bound to accept the liability under Clause 20.1 of the contract.
The Awarding of this claim has been resisted on the ground that a conscious disregard of law or the provisions of the contract from which the Arbitrators have derived their authority vitiates the Award . It is contended that it was for the Arbitrators to decide whether wharfage is a duty under the provisions of the Major Port Trust Act and not to rely on the opinions of Executive Authorities. Various judgments have been cited to point out the distinction between a tax and a fee. It is contended that in the event it was a fee, wharfage had to be paid by the respondent and not by the petitioner. The Arbitrators in relying on the opinion of Executive Authorities abrogated their jurisdiction.
On behalf of the respondent, it is contended that there is no plea that the Arbitrators misconducted the proceedings by deciding contrary to the contract on the ground that wharfage is not a duty/tax under Clause 20 but a fee under Clause 15 of the contract. The Arbitrators in so Awarding have relied on all contentions, documents and evidence and it cannot be said that the Arbitrators have given reasons which are not germane. Whether a wharf age is a fee or tax is a matter of fact and must be decided on the basis of the facts of each case. Even on assumption that there is a proposition of law stated in the Award it is a possible or plausible view that wharfage is a tax and not a fee. The dividing line between the two is very thin. Once the Arbitrators have so decided this Court would not interfere with the Award and it is also not amenable to correction by the Court as the Arbitrators' decision on facts and law is final. It is further contended that in rejecting the contention of the petitioner the Court does not put its imprimatur to any legal conclusion or legal proposition in the Award. The Court's powers of interfering with an Award being very limited. The Court should uphold the Award even if the Court comes to a different view as it is not siting in appeal over the decision of the Arbitrators.
5. In the first place it will be necessary to decide the contention as to whether there is a challenge by the petitioner to the Award for the grant of wharfage. In Haji Ebrahim Kassam Cochinwalla v. Northern Indian Oil Industries Ltd., , a Single Judge of the Calcutta High Court was considering a ground hot stated in the objections to the Award. A ground was sought to be taken by an affidavit filed in the course of the petition. The learned Single Judge held that it must be considered to be a new ground raised much beyond the period of limitation and as such must be held to be barred on the ground of limitation. In Bijendra Nath Srivastava (dead) through L.Rs. v. Mayank Srivastava and others, , Several grounds of misconduct had been raised. By an amendment in the nature of seeking better particulars a new ground of misconduct was sought to be raised. The Apex Court held that by allowing the amendment for better particulars in fact the respondent therein were permitted to bring in a ground of misconduct not alleged earlier. The Apex Court held that in these circumstances the amendment ought not to have been allowed and the order of the trial Court allowing amendment to bring in the said ground was liable to be set aside. In an unreported Judgment of this Court in the case of A.T.V. Projects (India) Ltd. v. Walchandnagar Industries Ltd., dated 5/6th April 1995 in Arbitration Petition No. 143 of 1992 in Award No. 218 of 1991 in Arbitrators Suit No. 1315 of 1987, a learned Single Judge of this Court refused to allow a ground to be taken which was not taken before the Arbitrators nor raised in the petition.
The petition is prolix. No specific ground as sought to be contended was raised. Nonetheless reference in the petition was placed on the arguments advanced as to what is wharfage. It was therein contended that wharfage is not a duty but a fee and as such not payable. By para 17 of the petition the arguments were made part of the petition. In this background, it cannot be said that such a ground has not been raised. I am therefore permitting the petitioner to raise the said contention. In Associated Engineering Company v. Government of Andhra Pradesh and another, , the Apex Court has held that conscious disregard of the law vitiates the Award. An Award therefore in disregard of the law would amount to the Arbitrators misconducting themselves thereby vitiating the Award.
The question therefore that has to be decided is whether wharfage is a duty or fee payable under the provisions of the Major Port Trust Act. In Babaji Kondaji Garad and others v. Nasik Merchants Co-operative Bank Ltd., Nasik and others, , the Apex Court observed that it is the function of the Court to construe legislative measures and in reaching the correct meaning of a statutory provision, opinion of executive branch is hardly relevant, nor can the Court abdicate in favour of such opinion. Merely because the parties themselves had purportedly agreed to abide by the decision of the Executive Authorities assuming it to be so, does not preclude the parties in contending that wharfage is not a tax but a fee. The petitioner chose not to produce the said opinion on record. They did not agree by the opinion given. The matter was referred to arbitration whether wharfage was payable. The reference to arbitration did not include a claim that the matter was concluded by the opinions of the Authorities. No contract as required by law was entered into between the petitioner and the respondent making the opinion of the executive body final. Even assuming that some officers of the petitioner had held out to the respondent that they would follow the opinions of the Authorities the petitioner as a body corporate was not a party to such an agreement and consequently could not be bound by verbal assurances or statements of its officers. Respondent relied on a judgment of the Special Bench of the Allahabad high Court in Aft. Akbari Begam v. Rahmat Husain and others , to contend that where the parties agree to abide by the statement of the third person or a referee, the referee merely makes a statement according to his knowledge or belief and the Court then decides the case and pronounces its judgement on the basis of such a statement and passes a decree thereon. Be that as it may, it is clear that the Arbitrators on a point of law could not have abrogated their responsibility to construe the provisions of the Act and in reaching the correct meaning of a statutory provision abrogate in favour of an executive opinion.
My attention is invited to the meaning of wharfage in Black's Law Dictionary, Sixth Edition. Wharfage is defined as under :-
"Wharfage- The money paid for landing goods upon, or loading them from, a wharf. Manhattan Lighterage Corporation v. More McCormack Line D.C., N.Y., 45 F. Supp. 271, 273. Charge for use of wharf by way of rent or compensation. Marine Lighterage Corporation v.
Luckenbach S.S.Co., 139 Misc. 612: 248 N.Y.S. 71, 72."
With this background let us consider whether wharfage is a tax or a fee. A large number of judgments were cited by both the sides as to what is tax and fee. I need not refer to them as the law distinguishing a tax and fee has been considered and summarised in Krishi Upaj Mandi Samiti and others v. Orient Paper & Industries Ltd, . The Apex Court has summarised the tests to decide what is a tax and what is a fee.
"21. Thus what emerges from the conspectus of the aforesaid decisions is as follows :
(1) Though levying of fee is only a particular from of the exercise of the taxing power of the State, our Constitution has placed fee under a separate category for purposes of legislation. At the end of each one of the three Legislative Lists, it has given power to the particular legislature to legislate on the imposition of fee in respect of every one of the items dealt with in the list itself, except fees taken in Court.
(2) The tax is a compulsory exaction of money by public authority for public purposes enforceable by law and is not payment for services rendered. There is no quid pro quo between the tax payer and the public authority. It is a part of the common burden and the quantum of imposition upon the taxpayer depends generally upon his capacity to pay.
(3) Fee is a charge for a special service rendered to individuals or a class by some governmental agency. The amount of fee levied is supposed to be based on the expenses incurred by the Government in rendering the service though in some cases the costs are arbitrarily assessed. Ordinarily, the fees are uniform and no account is taken of the varying abilities of different recipients to pay. There are various kinds of fees and it is not possible to formulate a definition that would be applicable to all cases.
(4) The element of compulsion or coerciveness is present in all kinds of impositions though in different degrees and it is not totally absent in fees. Hence, it cannot be the sole or even a material criterion or distinguishing a tax from fee. Compulsion lies in the fact that payment is enforceable by law against an individual in spite of his unwillingness or want of consent and this element is present in taxes as well as in fees.
(5) The distinction between a tax and a fee lies primarily in the fact that a tax is levied as a part of the common burden while a fee is a payment for a special benefit or privilege. Fees confer a special capacity although the special advantage is secondary to the primary motive of regulation in the public interest. Public interest seems to be at the basis of all impositions but in a fee it is some special benefit which is conferred and accruing which is the reason for imposition of the levy. In the case of a tax, the particular advantage if it exists at all, is an incidental result of State action. A fee is a sort of return or consideration for services rendered and hence it is primarily necessary that the levy of fee should on the face of the legislative provision be correlated to the expenses incurred by the Government in rendering the services.
(6) There is really on Sic no. generic difference between tax and fee and the taxing a power of the State may manifest itself in three different forms, viz., special assessments, fees and taxes. Whether a cess is tax or fee, would depend upon the facts of each case. If in the guise of fee, the legislature imposes a tax it is for the Court on a scrutiny of the scheme of the levy, to determine its real character. In determining whether the levy is a fee, the true test must be whether its primary and essential purpose is to render specific services to a specific area or classes.
(7) It is not a postulate of a fee that it must have relation to the actual service rendered. However, the rendering of service has to be established. The service, further, cannot be remote. The test of quid pro quo is not to be satisfied with close or proximate relationship in all kinds of fees. A good and substantial portion of the fee must, however, be shown to be expended for the purpose for which the fee is levied. It is not necessary to confer the whole of the benefit on the payers of the fee but some special benefit must be conferred on them which has a direct and reasonable correlation to the fee. While conferring some special benefits on the payers of the fees, it is permissible to render service in the general interest of all concerned. The element of quid pro quo is not possible or even necessary to be established with arithmetical exactitude. But it must be established broadly and reasonably that the amount is being spent for rendering services to those on whom the burden of the fee falls.
(8) Absence of uniformity is not a criterion on which alone it can be said that the levy is of the nature of a tax. The legislature has power to enact appropriate retrospective legislation declaring levies as fees by denuding them of the characteristics of tax.
(9) It is not necessary that the amount of fees collected by the Government should be kept separately. In view of the provisions of Article 266, all amounts received by the Governments have to be credited to the Consolidated Funds and to be public accounts of the respective Governments."
The fixation of rates under the Major Port Trusts Act came up for consideration in the case of Trustees of the Port of Madras v. M/s. Aminchand Pyarelal and others, . The Madras High Court proceeded on the footing that the scale of rates and statement of conditions framed by the Madras Port Trust under sections 42, 43 and 43-A are bye-laws. Wharfage falls under section 43 of the Major Port Trusts Act. The Apex Court observed that the bye-law is an ordinance affecting the public or some portion of the public, imposed by some authority clothed with statutory powers, ordering something to be done or not to be done, and accompanied by some sanction or penalty for its no-observance. The Apex Court there proceeded to hold that it was not possible to accept the view taken by the High Court that the scale of rates prescribed by the Board under sections 42, 43 and 43-A consists as it were of so many bye-laws or that Rule 13 which was relied thereto was in the nature of a bye-laws. The Apex Court observed as under :-
"In such matters, where services are offered by a public authority on payment of a price, conditions governing the offer and acceptance of services are not in the nature of bye-laws. They reflect or represent an agreement between the parties, one offering its services at prescribed rates and the other accepting the services at those rates. As generally, in the case of bye-laws framed by a local Authority, there is in such cases no penal sanction for the observance of the conditions on which the services are offered and accepted. If the services are not paid for, the Board can exercise its statutory lien on the goods under section 51 and enforce that lien under section 56 of the Act, or else, the Board may taken recourse to the alternative remedy of a suit provided for by section 62."
In paragraph 24 the Apex Court thereafter observed as under :-
" in the first place, Port Trusts, are bodies of a public representative character who are entrusted by the legislature with authority to frame a scale of rates and statement of conditions subject to which they shall or may perform certain services. Port Trusts are not commercial organisations which carry on business for their own profit. Section 39(1) and (2) of the Act cast on the Board an obligation according to its powers, to provide all reasonable facilities, if so required by any owner, for various kinds of services mentioned in Clauses (a), (b) and (d) of section 39(1), which include services in regard to landing of goods between vessels and docks in possession of the Board and receiving, storing or delivering goods brought within the Board's premises. The Board under section 39(3) shall, if required, take charge of the goods for the purpose of performing the service. After the goods are thus taken charge of and a receipt given for them, no liability for any loss or damage which may occur to the goods, attached to any person to whom the receipt has been given or to the master or owner of the ship from which the goods have been landed. The responsibility of the Board for the loss, destruction or deterioration of goods of which it has taken charge is, under section 40 of the Act, that of a bailee under sections 151, 152 and 161 of the Contract Act, subject to some modifications. Thus the rates which the Board levies are a consolidated charge for the various services it renders and the liability which it is compelled by statue to undertake."
It is thus clear that the Apex Court proceeded on the footing that the rates fixed are not pursuant to any bye-laws. In other words they are not statutory in character or in exercise of any subordinate legislation. As pointed out earlier in the case of Krishi Upaj Mandi Samiti and others (supra) one of the tests to determine a tax or fee is whether it is pursuant to the taxing powers of the State. The rate charged being not in exercise of the taxing power the question of it partaking character of tax or a fee will not arise at all. Tax or fee can be levied only by the State (including a local authority). As held by the Apex Court in Trustees, Port of Madras (supra) it is a rate which is in the form of a consolidated charge payable for various services rendered and the liability which it is compelled by the statute to undertake. In Visakhapattnam Port Trust and another v. M/s. Ram Bahadur Thakur Pvt. Ltd., etc., , the same question arose again. After considering the provisions of sections 42 and 48, the Apex Court observed as under :-
"A co-joint reading of sections 42(1) and 48(1) shows that the Board has to frame a scale of rates at which, and a statement of conditions under which, the concerned services are made available at the major port by the Board concerned. It, therefore, becomes clear that the scale of rates for transhipment of goods to and from vessels in the port or port approaches and for landing and shipping of goods from or to such vessels from any wharf, quay, jetty, pier, dock, etc. within the premises of the port, has a direct linkage with the conditions under which such services are rendered. Consequently, the scale of rates for such services which are to be offered by the Board of a major port to the concerned shippers has to be ascertained or fixed in the light of the type of conditions subject to which such services are offered."
6. In the light of that it is clear that wharfage is not a tax or a duty. The Arbitrators, therefore, misconducted themselves in Awarding the same. The plea of the Petitioner must therefore be accepted and the Award to that extent must be set aside.
7. That brings us to the next contention namely Awarding of Hooking Charges. It was again contended that there was no specific plea raised to challenge the Award. It may, however, be mentioned that the petitioner in para 14 have taken a plea that the Award has been rendered contrary to and outside the terms and conditions of the contract. This read with the argument relied on in para 17 of the petition, would be sufficient to hold that the petitioner have raised such a plea. The Arbitrators have held that it was the duty of the respondent to deliver the coated pipes on trailers alongside wharf/ berths which they have done. In that context the labour charges for labour provided by the respondent for hooking of the coated pipes and for lifting by the cranes for placement on the barges was admissible.
Let us now look at the definitions. Contract means and includes contract price. Price schedule as at Annexure 'B'. The relevant portion under No. 5 reads as under:-
"The coated pipes and coated pipes with anodes shall be delivered by the contractor to meet the sequential requirements of pipe laying. All pipes shall be delivered on trailers by the contractor alongside wharft/berths at Kandla Port."
'Contract price' means the sum named in Annexture 'B' attached in the contract subject to any additions thereto or deductions therefrom which nay be made under the provisions of the contract. The proforma 'Price Schedule' under Handling of Coated pipes, provides as under :--
"Transportation of coated pipes upto berth/jetty/anchorage point including handling/stacking of coated pipes in yard in compliance with relevant specifications and contract clauses."
Clause 4 reads as under :--
"Brief description of items of work, unit rates payable and the quantity to be executed under the contract agreement are detailed in Annexure B attached hereto. The Contractor shall be paid at unit price for the quantities of work executed and accepted by the Company/authorised inspectors deployed by Company.
The unit rates detailed in Annexure B shall include procurement and supply costs of any and all materials and services required for executing the works of receiving bare pipes, corrosion coating, weight coating anodes installation and delivery of coated pipes alongside berths and inclusive of all costs of assessments/fees, insurance premium etc. payable by the Contractor for execution of the works."
Clause 12 reads as under :--
"No variation in the delivery schedule mentioned in Article 122 of the document shall be made by the Contractor unless authorised in writing by the Company.
Delivery in respect of coated, wrapped and weight coated pipes shall be deemed as completed upon such coated pipes being handed over to the laying contractor appointed by the Company in accordance with Article 3.5.
The Contractor shall make best endeavors to abide by the schedule of delivery mentioned in Article 12.2 of this document. However, in the event of Contractors failure to adhere to this Schedule of delivery, the Company shall invoke liquidated damages against the Contractor on the basis of Schedule of delivery mentioned in Article 12.2 of this document."
I have already referred to the price earlier for handling the coated pipes which includes handling/stacking of coated pipes in yard in compliance of relevant specifications and, contract clauses. From all this it is clear, that not only had the respondent to deliver the pipes along side the berth to the laying contractor but it also include handling/stacking of coated pipes in yard. Clause 4 made it clear that the unit rates in Annexure 'B' shall include the cost of all services required to be rendered. The mere fact that instead of stacking them, they were helped to be loaded on to the barges would not mean that this was beyond the terms of the contract of the price stipulated as even otherwise they would have to stack the said pipes which would require hooking for the purpose of unloading. At any rate the matter was within the duties of the respondent or the laying Contractor, but definitely not that of the petitioner. The Arbitrators clearly ignored these clauses. Therefore in granting the claim the Arbitrators exceeded their jurisdiction.
8. That brings us to the challenge to the Award in so far as idle charges are concerned. It is now well settled that if there is no provision in the contract excluding a claim for damages it is within the jurisdiction of the Arbitrators to consider and decide the same. In Russel on Arbitration (20th Edn.) at page 1590 is contained the following proposition of law :--
"Claims in tort may be so intimately connected with a contract that a clause of appropriate width designed primarily to make contractual disputes arbitrable will nevertheless render such claims in tort arbitrable as well."
This proposition of law that it would lie within the jurisdiction of arbitral tribunal to provide for damages in the event it is not specifically provided for has been accepted by the Apex Court in the case of Renusagar Power Co. Ltd. v. General Electric Company and another, .
I am therefore clearly of the opinion that the Award of the Arbitrators on that count being within their jurisdiction they could have decided the same. No interference with the Award Awarding the claim is called for and consequently the claim to that extent is upheld.
9. For the aforesaid reasons, petition partly allowed. The Award of the Arbitrators is set aside in so far as the claim pertaining to wharfage and hooking charges are concerned. The rest of the Award is sustained.
Decree in the said terms alongwith interest at the rate of 11 per cent from the date of decree till payment. In the circumstances of the case, there shall be no order as to costs.
10. Petition partly allowed.